lesotho revenue authority annual report 2017.pdf · ntfc national trade facilitations committee oga...

A n n u a l R e p o r t 2 0 1 7 - 2 0 1 8

Lesotho Revenue Authority

Share of Revenue collected by Tax Type

Percentage contribution to National Budget

Remittances Target

Tax revenue Grants Other revenue SACU

Inner circle: 2015/16Middle circle: 2016/17Outer circle: 2017/18

M5,989,70million

M6,597,08million

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Table of contents

General information

Statement by the Honourable Minister of Finance ................................................................................ 6

Statement by Board Chair ..................................................................................................................... 7

Statement by the Commissioner General .............................................................................................. 8

Strategic Oversight and Governance by Board ...................................................................................... 9

Committees of the Board ...................................................................................................................... 10

Performance of revenue and achievements of other strategic outcomes

Operating Environment ........................................................................................................................ 13

Outcome 1: Increase Revenue Growth ................................................................................................. 14

Outcome 2: Improve Ease of Compliance ............................................................................................. 18

Outcome 3: Facilitate Trade Across Borders .......................................................................................... 20

Outcome 4: Ensure Financial Stability .................................................................................................. 24

Outcome 5: Increase Staff Satisfaction .................................................................................................. 25

Corporate Social Investment (CSI) ............................................................................................................. 27

Project Implementation .............................................................................................................................. 28

Organisational Structure ............................................................................................................................ 33

Financial Statements ................................................................................................................................... 36

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List of abbreviations

ASYCUDA Automated System For Customs Data

BEDCO Basotho Enterprise Development Corporation

CBL Central Bank of Lesotho

CG Commissioner General

CIT Company Income Tax

CRP Common Revenue Pool

EXCO Executive Committee

FBT Fringe Benefit Tax

GDP Gross Domestic Product

GOL The Government of Lesotho

HOBA Head of Border Agencies

IIT Individual Income Tax

IMF International Monetary Fund

IT Income Tax

LCCI Lesotho Chamber of Commerce and Industry

LCCT Lesotho Coordinating Committee on Trade

LIA Lesotho Institute of Accountants

LMPS Lesotho Mounted Police Service

LRA Lesotho Revenue Authority

LERASU Lesotho Revenue Authority Staff Union

MOU Memorandum of Understanding

NSDP National Strategic Development Plan

NTFC National Trade Facilitations Committee

OGA Other Government Agencies

PAYE Pay As You Earn

PIT Personal Income Tax

TRF Trade Related Funding

SACU Southern African Customs Union

SADC Southern African Development Community

TRS Time Release Study

VAT Value Added Tax

VRA Value Added Tax Refunds Administrator

WCO World Customs Organisation

WTO TFA World Trade Organisation’s Trade Facilitation Agreement

WHT Withholding Tax

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Mission/Vision

We provide revenue collection, border management and advisory services through:

• A capable and motivated workforce;

• Understanding and responding to the needs of our market;

• Building strong and sustainable relationships with stakeholders;

• Fast, efficient and cost effective programs;

In order to influence voluntary compliance.

To be a Leading, Performance Oriented Revenue Administration Characterised by Integrity,Innovation and Service Excellence.

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A Strategy 2014-2019

Teamwork Integrity Innovation Service excellence Accountability

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To be a leading, performance orientated

Revenue Administration characterised by integrity, innovation and service excellence

Increaserevenue growth

Improve ease of

compliance

Facilitate trade across

Borders

Ensurefinancial

sustainability

Increasestaff

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Market Category

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What we do

As the Lesotho Revenue Authority, wehave been mandated by Law to assess,collect and receive revenue for theGovernment of Lesotho, operating underthe general supervision of the Minister of Finance.

As per the LRA Act No. 14 of 2001, ourmandate is to:

Administer and enforce the followingrevenue laws:

• Customs and Excise Act 1982

• Income Tax Act 1993

• Sales Tax Act 1995

• Value Added Tax 2001

Assist our clients to comply voluntarilywith tax laws;

Take the necessary measures to improvethe standards of service given to clients toimprove efficiency, effectiveness andmaximize revenue collection;

Do all possible to counteract tax fraudand other forms of fiscal evasion; and

Advise the Minister on matters of revenuepolicy, administration and collection ofrevenue under the tax laws.

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At the close of the 2017-18 Financial Year (FY), theworld faced moderating international trade andtightening global financing conditions, but nonethelessmaintained a steady growth in both 2017 and 2018.2018 was considered to be the first year, since thefinancial crisis, that the global economy would beoperating at or near full capacity. This made it necessaryfor policymakers to look beyond monetary and fiscalpolicy tools to stimulate short-term growth andconsider initiatives more likely to boost long-termpotential: initiatives like investment in human andphysical capital which increase countries’ productivity,boost workforce participation, and move closer to thegoals of ending extreme poverty and boosting sharesprosperity.

Seven largest emerging markets (China, India, Brazil,Mexico, Russia, Indonesia and Turkey) accounted foralmost all the increase in global consumption of metalsand two thirds of the increase in energy consumptionduring this time. Global commodity pricesstrengthened in the first quarter of 2018 and wereexpected to be higher on average in 2018 than in 2017.Broad-based price increases were supported by bothdemand and supply factors, including restraint bymajor oil producers, trade tensions, and economicsanctions.

Moreover, this period proved to be a challenging onefor geopolitics in different areas of the world. America’sforeign policy changed following new administration,giving leeway to China and Russia to assume themantle. The shifts continued to pose challenges toglobal politics and international affairs through 2018.These coupled with persisting North Korean threats,terrorism, the Iran-Russia-Syria alliance, Saudi Arabia’sambitious goals and climate change were some of themost important issues that the world faced in thisperiod under review.

All these global developments take place at a time whenLesotho is considered to have grown faster than itsregional peers over the last decade, partly driven bycapital intensive mining and infrastructure projects.High levels of unemployment, poverty, and inequalityhowever still persist. There was therefore a need for newengines of growth, a more streamlined role for the state,and a dynamic private sector to help Lesotho seizeopportunities in regional and global markets.

As I reflect on the 2017-18 FY therefore, I see a yearwhich marked the need for a radical change in theAuthority, bringing hope for a better tax administration.This was indeed the year of new beginnings, the year inwhich a shift in focus was initiated. It was a year inwhich a new Board of Directors for LRA was appointedand the Commissioner General reinstated. A newstrategic plan was also developed introducingadvanced working model and processes. I applaud theLRA staff for their contribution in the year’sperformance, acknowledging that it may have not beena smooth year. I however have confidence in the newleadership and believe that through their collaborativeapproach to work, the LRA performance will take apositive turn for the betterment of Lesotho and allBasotho.

Dr. Moeketsi Majoro (MP)Minister of Finance

Statement by the Honourable Minister of Finance

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The 2017/18 financial year marked the end of tenureof the 5th LRA Board of Directors which came intooffice in 2014. Therefore, this is my first statement asthe Chairman of the 6th LRA Board which wasannounced on 2nd November 2017 by theHonourable Minister of Finance, Dr. Moeketsi Majoro.

As the new Board, we come into office when the LRAis facing a number of challenges. This is the year whenLRA has recorded another shortfall in revenue collec-tion, making a historical record of missing the targetfor two consecutive years.

As mandated by the Honourable Minister, our first taskis to work together with management and the rest ofthe staff to address all existing concerns and to instilunity among all employees. We are also tasked withrestoring the Authority’s reputation of service excel-lence and integrity. As the Honourable Minister puts it,we have to “Bring back the glory days of LRA”. In thisreporting period, the Authority collected and remittedM5.989 million to government coffers. Compared tothe previous year, this is a zero percent growth, as aresult the target was missed by M607 million (9.2 per-cent).

As the new Board, we joined the Authority at the timeof great challenges such as declining revenue per-formance; high cost of collection; a depreciatingbrand equity as well as a deterioration in staff morale.Therefore, we saw our greatest challenge as gettingManagement to come up with a turnaround strategy.To that end, we first prioritised the normalisation ofthe leadership of the organisation by reinstating theCommissioner General.

With that achieved, we directed the management todefine a new strategic direction by developing a newstrategy for the next five years. Consequently, as at theend of the period under review, the Board approved anew “Rea Aha – We are Building” Strategy whichreplaced the “Chebelo Pele” Strategy that still had ayear to run. With this new strategy, which emphasisesa strategic shift to a more service oriented approach todoing our business, I am confident that we aretransforming the Authority for the benefit of the nationat large. I invite all our stakeholders to hold handswith us as we undertake this important task.

In conclusion, I wish to thank my fellow Board Mem-bers for the hard work they continue to put in to guidethe Commissioner General and his Executive Team tocome up with the new strategy which, notably wasdeveloped by the LRA Staff without the assistance ofany external consultant.

I gratefully acknowledge the work of the ManagementTeam and Staff of the Authority. A special vote ofthanks in this regard is also extended to theHonourable Minister of Finance Dr. Moeketsi Majorofor the support and guidance. Lastly, I thank ourclients for honouring their commitment of always pay-ing their taxes due, and on time.

Mr. Robert LikhangChairman of the Board

Statement by the Board Chair

The 2017-18 FY was the most challenging one for theLRA. This is the time when the Authority has missed atarget in two consecutive years (430 million and 607million in 2016-17 and 2017-18 respectively). Thistranslates to a deficit of 6.2 percent in 2016-17 FYfollowed by negative 9.2 percent in 2017-18 FYwhich amounts to M1,037 million in monetary terms.

In order to identify and define the core challenges thatwe are facing as an organisation, we undertook adiagnosis which was informed by the informationgathered from various stakeholder engagementsessions. Our diagnosis has revealed that there is apoor leadership culture characterised by autocraticleadership and a heavy enforcement culture.

This has resulted in the following symptoms;

• Low staff morale• Ineffective processes and systems• Inadequate funds• Inadequate organisational structure• Inadequate performance management system• Poor service delivery

It is in light of this diagnosis that we undertook todevelop a new LRA 2018 - 2023 Strategy “Rea aha”,whose implementation will begin in the new financialyear 2018.

I therefore wish to conclude by indicating that,although revenue collection remains a challenge, asan organisation we ended the year well withimprovements made in getting to understand ourclients or the taxpayers better. We identified strategiesthat position us better to serve. We are also enhancingour ability to grow and learn as an organisation. It isour belief that with this taken care of, improvement inrevenue collection will ensue.

I and all LRA staff look forward to the new financialyear with a renewed sense of responsibility to do evenbetter in helping our country to grow. We remainhumbled and grateful for all the support, assistanceand guidance that we have received from all ourPartners during this financial year.

Mr. Thabo David KhasipeCommisioner General

Statement by the Commissioner General

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The Authority is governed by a Board comprised ofrepresentatives from the public, parastatals and privatesectors. The Board is appointed by the Minister of

Finance in accordance with the LRA Act No. 14 of2001, and sits on a monthly basis.

Our Board from left to right : Back row: Mr. Chabeli Ramolise, Mr. Thabo David Khasipe, Mrs. Libako Leisanyane, Mr. Robert Likhang,

Mr. Lefu Mokaoane, Mr. Bohlale Phakoe,Seated: Advocate Lindiwe Sephomolo KC and Mrs. Tšireletso Mojela,

Our Board provides strategic oversight and governance

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Committees of the Board

Finance and Audit Committee

(FAC)

The committee provides oversighton the financial management ofthe Authority including ensuring

the preparation of accurate financial reporting and statementsin compliance with all applicable

legal requirements and accounting standards.

The committee is also responsiblefor risk management and

oversight of the internal auditfunction.

Information and CommunicationTechnology Committee

(ICTC)

The committee is responsible forproviding advice to the Boardwith regard to monitoring the

adequacy, efficiency and effectiveness of the LRA’s ICT

policies and investments, in asmuch as these may impact thestrategy, financial performance

and risk profile of the LRA. The committee is also responsiblefor ensuring the alignment of ICTinvestments with the overall LRA

strategy.

Human Resource and Remuneration Committee

(HRRC)

The committee assists the Board with oversight on human

resources management, recruitment processes for

executive management, includingthe Commissioner General, Remuneration matters and

general staff welfare matters.

In order to help it to effectively carry out its mandate, it has three committees which sit on a quarterly basis. The role of the Committees have been summarised below.

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Mr. Lefu Mokaoane (Member)

Mr. Mokaoane was appointed as the LRA Boardmember from November 2017. He is also the Chair ofFinance and Audit Committee for LRA Sub-committeeto the Board. He is also serving on the board ofLesotho Institute of Accountants, and also chairs theAudit and Risk Committee of the Institute.

Mr. Mokaoane has an extensive experience inFinance, having worked in that field for the past 19years, and being a Chartered Accountant. He iscurrently working as the Chief Finance Officer forLesotho Highlands Development Authority.

He previously worked in WASA (currently WASCO)and Office of the Auditor General.

Advocate Lindiwe Sephomolo KC (Member)

Advocate Lindiwe Sephomolo KC is the Chief Execu-tive Officer of the Association of Lesotho Employersand Business. She was appointed as the member of theLRA Board from 2015 during that period she served asthe Chairperson of the Human Resource and Remu-neration Committee. She is currently serving on twoBoard committees namely; Information and Commu-nications Technology Committee (ICTC) and HumanResource and Remuneration Committee (HRRC).

She is an advocate of the Courts of Lesotho, a special-ist in Labour Law, a seasoned negotiator and policyspecialist with over 23 years post legal qualification.She has received national recognition and has beenappointed King’s Counsel.

She is passionate about business development andtrade. Her postgraduate studies include courses in thearea of Labour Law, trade and policy, lobbying and ad-vocacy, corporate governance.

Previously Adv. Sephomolo worked as the first ChiefExecutive Officer of the Private Sector Foundation andhas also been advisor to the Ministry of Trade andIndustry where she was responsible to the establishmentof the One Stop Business Facilitation Centre.

She is an active spokesperson of the Employersnationally, regionally and internationally.

Mr. Bohlale Phakoe (Member)

Mr. Phakoe was appointed as the member of the LRABoard from November 2017 which is his second timeafter serving part term in the 4th Board.

Mr. Phakoe has extensive experience in FinancialMarkets and risk Management and is currentlyworking as a Director of Financial Markets at theCentral Bank of Lesotho.

Within the Board, Mr. Phakoe is also serving in theHuman Resource and Remuneration Committee as theChairperson as well as in the Finance and AuditCommittee.

Mr. Lefu Mokaoane

Advocate Lindiwe Sephomolo KC

Mr. Bohlale Phakoe

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Mrs. Tšireletso Mojela (Member)

Mrs. Mojela was appointed as the member of the LRABoard from 2015, during that period she served as acommittee member of both the FAC and HRRC. She isserving her second term as a Board Member of the LRA.

Mrs. Mojela was also a chairperson of the BEDCOBoard of Directors.

She has extensive experience in Trade and IndustrialDevelopment issues, and has previously worked as abusiness counsellor at Lesotho Manufacturers Associ-ation. Shi is currently working as the Director ofIndustry within the Ministry of Trade and Industry.

Mr. Chabeli Ramolise (Member)

Mr. Ramolise was appointed as the member of the LRABoard from November 2017, within which he is theChairman of the Information and CommunicationsTechnology Committee (ICTC) as well as a member inthe Finance and Audit Committee.

He is also serving in the Board of WASCO as the Chair-man, and in the Board of Tloutle Holdings as theDeputy Chairman.

Mr Ramolise is an economist and accountant by train-ing, an experienced financial markets expert, a riskpractitioner, a banker and business developmentexpert. He is an economist of the Lesotho Chamber ofCommerce & Industry.

Mrs. Libako Leisanyane (Member)

Mrs. Leisanyane was appointed as the Deputy Chairof the LRA Board from November, 2017.

She is also serving on the Board of the LesothoPetroleum Fund. She previously served in the Coun-cil of Lerotholi Polytechnic where she was also aChair of the Audit and Risk Committee.

Mrs. Leisanyane has extensive experience inEconomics, Statistics and Corporate Governance.She is currently working as Acting Director, Depart-ment of Macroeconomic Policy and Management inthe Ministry of Finance.

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The Global EconomyFigure 1 shows the global economic performance fortwo years, and global real output growth increasedfrom 3.1 percent in 2016 to 3.7 percent in 2017. Thisgrowth was supported by a recovery in thecommodity export markets, coupled with tax cuts andincrease in spending in the US, which led to anincrease in investment in advanced economies.

Figure 1: Global Economic Performance in 2017Source 1: World Economic Outlook January 2018

The SACU EconomiesThe SACU region experienced an uneven economicgrowth with Namibia recording the lowest real GDPgrowth as depicted by Figure 2. The performance is un-derpinned by easing global economic conditions cou-pled with a recovery in the commodity prices thathave contributed to the economic growth in SACUeconomies. The region however remains vulnerable tomacroeconomic shocks and other vulnerabilities suchas extreme weather conditions including drought. Thegrowth in the region has also resulted from demandfor traditional and non-traditional exports from Africawhich remained modesty robust.

Figure 2: SACU Real GDP Growth Year-on-year

Source: African Economic Outlook 2018

Domestically, the economy recorded a 4.6 percentnominal GDP growth rate in 2017 as shown in Figure3 above. This growth was driven mainly by robustgrowth in the primary sector accompanied by modestgrowth in tertiary and secondary sectors. On the otherhand the secondary sector contracted by 2 percentagepoints between 2016 and 2017.

Figure 3: Lesotho Annual Sectoral Economic Growth Rates 2013-2017

Primary sector performance resulted from a miningsector rebound from -2.4 percent in 2016 to 34.4percent in 2017.

The contraction in the Secondary sector stemmedfrom a 20 percent decline in construction activitiescoupled with massive slowdown in the manufacturingsector.

The better performance in the Tertiary sector isattributed to an improved activity in the transport andcommunications subsectors and an improvedperformance in the financial services.

Performance of Revenue and Achievements of other Strategic OutcomesOperating Environment

The Lesotho Economy in 2017

Source 3: Central Bank Annual Report 2017

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The Authority managed to collect M5,989 million outof M6,597 Target. Figure 4 further shows that only

Value Added Tax (VAT) exceeded targets by M51.34million.

Figure 5: 2017/18 Contributions by Tax Type

The realised performance has been supported by strongperformance in VAT which in terms of percentage con-tribution takes the larger share of the pie at 40.0 per-cent, followed by Personal Income Tax (PIT).

Figure 6: Percentage Contribution by Tax Type Overtime

Corporate Income Tax (CIT) performed badly ascompared with other years with a decrease of 3.0percentage points from its normal average contributionof 18.0 percent. Furthermore, for the first time in thehistory Other Taxes (OT), comprising of WithholdingTax, Fringe Benefit Tax and Gambling Levy, collectionsare above that of CIT, as shown in See Figure 6.

Outcome 1: Increase in Revenue Growth

Source 4: LRA Database

Source 6: LRA DatabaseSource 5: LRA Database

Figure 4: Overall Revenue Performance 2017/18

VAT CIT OT PIT

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Figure 7 demonstrates that during the period under re-view, revenue performance improved in Quarter 3

while the quarterly targets were missed for the otherthree quarters.

VAT remittances grew by 7 percent in 2017-18 FYfrom 2.0 percent in 2016-17 FY, boosted by an 11.0percent increase in inland VAT which has amongstother reasons been driven by an improvedmanagement of refunds; this led to a decrease infraudulent refunds. The VAT refunds decreased fromM674.83 million in 2016-17 FY to M631.70 millionin 2017-18 FY.

Inland VAT PerformanceAs a result of an increased purchasing power ofconsumers coupled with better performance of theeconomy, wholesale and retail trade recorded agrowth in output. Growth in this sector consequentlyresulted into an increase in VAT payments therebyboosting VAT collections.

The Authority’s efforts to improve compliance in thewholesale and retail trade sub-sector throughdedicated initiatives has also had an impact hencerealised performance in VAT collections.

Import VAT PerformanceImport VAT receipts declined by 0.4 percent driven bymassive rejections in VAT from VAT RefundsAdministrator (VRA). The rejection rate was inter aliainfluenced by observed non-compliance to SouthAfrican Customs procedures by traders.

Income Tax remittances missed the annual target ofM4.2 billion by M658.73 million recording a 4.2 percent decline compared to a 2.3 percent increasein 2016-17 FY. This performance is attributable to a decline in CIT, which missed the annual target byM444.56 million.

Company Income Tax (CIT) Performance

CIT missed the annual target of M1.23 billion byM444.56 million which is 36.2 percent. The CITremittances declined by 20.0 percent from 2016-17 FY remittances. The 20 percent contraction in CITresulted from a decline in CIT contribution from majorcontributors which are the mining and quarrying, andfinance and insurance sub-sectors.

Despite the reported increase in total output in themining and quarrying sub-sector, revenue collectionsfrom this sub-sector massively declined from M164million in 2016-17 FY. The reason for the CITunderperformance in this sub-sector has been claimedby the major contributors as resulting from reducedrevenues and negative impact of the exchange ratehence low taxable income.

In addition, some of the major contributors filed creditreturns in the period under review due tooverpayments made in 2016-17 FY.

Personal Income Tax (PIT) Performance

PIT which comprises of Individual Income Tax (IIT)and Pay As You Earn (PAYE) performed below target byM60.46 million (3.0 percent). During the periodunder review, PIT collections grew at a significantlylow growth of 1 percent relative to 13.0 percent in2016-17 FY and below the 3 percent adjustment onwages and salaries. This is due to a registered 2.3percent decline in the number of employees in thePublic Sector relative to a 1.3 percent decline in2016-17 FY. PIT remittances have declined despite the9.8 percent growth in PIT registrants.

Other Taxes (OT)

OT is comprised of Withholding Tax, Fringe BenefitTax and Gambling Levy. WHT is the largestcontributor of OT. Poor performance was recorded inOT due to a decline in the construction sector whichnegatively affected WHT collections.


Figure 7: Quarterly Revenue Performance (Million Maloti)

Value Added Tax (VAT)

Income Tax (IT)

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Figure 9 presents PIT annual performance against thetarget. As the figure, depicts, PIT started missing thetarget from 2010-11 FY to date. PIT has been affectedby the downward revision of PAYE rates and the lowabsorption rate of the Public Administration subsectorwhich is the major employer.

In summary, 2017-18 FY revenue performancerecorded no growth thus resulting in the lowest year-on-year since the inception of LRA. This is largely dueto poor performance of CIT which has sincecontracted further from -13.0 percent in 2016-17 FY to -20.0 percent in 2017-18 FY.

Figure 9: Pit Performance OvertimeCIT and PIT Trends Figure 8: CIT Performance Trends

2017-18 FY CIT performance was at its lowest since2011-12 FT which was the worst performing year. CITis largely supported by the mining subsector hence theobserved volatility in the remittances as this sector iscyclical in nature as Figure 8 depicts.

PIT AnalysisThe 2017-18 FY National Budget delivered on the19th July 2017 proposed some policy changes andrates as shown below:



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SACU Revenue

Figure 10: Lesotho Share of the Total SACU Revenue

Figure 10 shows the share of Lesotho from theCommon Revenue Pool (CRP). The Lesotho share ofthe SACU revenue has been constant at an average of7.6 percent while the growth rate pattern (shown inthe Figure 11) depicts the cyclical nature of the CRPwhich creates shocks in the public financialmanagement system.

Figure 12: Government Budget Disaggregated by Revenue Streams

In terms of contribution to the national budget, taxrevenue supports the national budget by an averageof 44.0 percent followed by SACU receipts at 41.0percent.

As depicted in Figure 12, the government budget isfinanced through four sources, domestic tax revenue,grants, other revenue and SACU receipts.

In summary, it is demonstrated in Figure 11 thatLesotho revenue share from the SACU commonrevenue pool is steadily declining which therefore

warrants an extensive mobilisation of domesticrevenues.

Figure 11: SACU-Lesotho Share and Growth Rate (%)

Source 10: LRA Database Source 12: Ministry of Finance Database


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Toll Fees In addition to the tax revenues that the Authority iscollecting on behalf of the Government, there is alsocollection of non-tax revenue in the form of Bordertoll fees that the Authority also collects on behalf ofRoad Fund at an agreed commission. For the year

under review, the total toll fees collected amountedto M50 million at a year on year growth rate of 0.8percent, slightly lower than the 2016-17 FY growth of1.9 percent registered between 2015-16 FY and 2016-17 FY.

Outcome 2: Improve Ease of ComplianceSimplified Business Tax regime (SBT)In the last quarter of the financial year 2017-18, weintroduced a simplified business tax regime. Theobjective of this regime was to introduce a flat rate forsmall and medium businesses. During the launch, itwas announced that the Authority was embarking onthe introduction of a Simplified Businesses Tax (SBT)regime for small and medium enterprises.

The initiative complements existing regime for thelarge clients, already under implementation. This formof taxation is intended to relief businesses fromcomplex, onerous and costly tax requirements whichregrettably promote non-compliance.

Under the SBT, clients will pay a predetermined fixedamount on agreed easy payment terms. In this regard,we are already in consultations with the transport andretail sectors and the intention is to introduce SBT

before end of March 2018. These negotiations andstakeholder consultations have benefited from supportof the Commissioner General.

Point-of-sale system introduced at theborder gatesWe introduced a new method to facilitate thepayment at the borders, through a Point-of-salesystem. The facility enables taxpayers to use their cardand swipe to pay their tax due at the port of entry. Asa result of this we received a cheque from theStandard Lesotho Bank in the Swipe and WinCompetition in August 2017. The prize was a result ofan outstanding performance where we exceeded a settarget for swipes processed at the Maseru BridgeBorder Post. This method of payment has become oneof the most preferred methods by our clients.

The Customs Officer verifies the declaration documents at the Maputsoe Bridge Border Post.

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The Voluntary Disclosure Programme (VDP) waslaunched in February 2018. The programme is aimedat facilitating voluntary compliance by extending anolive branch to those whose tax affairs are not in orderand to encourage them to come forward to regularizethem. The VDP also presents an opportunity to expandthe tax net. It is only when all clients have paid theirfair share of taxes that there would be a fiscal spaceneeded to consider reducing the tax rates for thosethat were already complying.

During the launch, the Honourable Minister ofFinance Dr. Moeketsi Majoro encouraged all LRAclients to take full advantage of the programme toregularise their tax affairs.

The VDP is an opportunity for businesses and

individuals to come forward voluntarily to regularisetheir tax affairs under Income Tax and VAT Laws andreceive amnesty on additional taxes and penalties

Benefits:

• Amnesty on additional taxes and penalties

• Non-pursuance of prosecution

• Opportunity to regularise tax affairs and havegood standing with the LRA

• Redemption from tax irregularities and othertax transgressions

Take Responsibility for a Fresh Start

Introduction of Voluntary Disclosure Programme (VDP)

The Hounorable Minister of Finance Dr. Moeketsi Majoro officially launching the Voluntary Disclosure Program

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Outcome 3: Facilitate Trade across Borders

WE AREIMPROVINGMOVEMENT OF GOODS

ACROSS THEBORDER

We strive to make it easy for goods to move in and out of the countrythrough principles of simplification, harmonization, transparency andstandardization. In this year, we pursued the following objectives;reduction of time taken to clear goods for imports and export,enhancement of predictability and transparency of Customs processes.Resulting highlights of trade facilitation reforms for the year were thedevelopment of a National Trade Facilitations Committee, RegulatorySingle Window Process and Time Release Study+, as required by theWorld Trade Organisation’s Trade Facilitation Agreement (WTO TFA). We have therefore made significant progress in the implementation of the WTO TFA.

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The NTFC reports to Lesotho Coordinating Committeeon Trade (LCCT), a Ministerial committee which servesas an advisory body to the Government of Lesotho ontrade and trade related policies. It functions as a keyfacilitator for negotiations as well as implementationof trade agreements. In this way, performancemeasures have been looked into at two levels being,nation-wide trade facilitation level and the internalLRA level. The latter is done through consideration offocus of control.

Contributions of affiliates like Head of Border

Agencies (HOBA), a technical working group underthe NTFC which we are party to, were therefore veryinstrumental in driving national trade facilitationissues.

Through our work with HOBA, we successfullysecured funding under the SADC Trade RelatedFunding (TRF), which will support the implementationof a coordinated border management strategy. Wefurther worked on establishing a Regulatory SingleWindow and on Preferred Trader Programme.

National Trade Facilitation Committee (NTFC), was established in October 2017, as isrequired by Section III, Article 23 of the WTO TFA. We assume a deputy chairmanship

role in this Committee.

Structure of National Trade Faciliation

Lesotho Coordinating Committee on Trade• A ministerial committee;• Approval and decision making body;• Consists of government ministries and agencies regulating trade;• LRA is a member of the committee.

National Trade Facilitation Committee• Administration committee;• Coordinates implementation of the WTO TFA;• Reports to LCCT;• LRA plays a deputy chairmanship role.

Head of Border Agencies• A technical working group;• Consist of all border agencies;• Other technical working groups are adhoc and developed when need arises;• Chaired by LRA.

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Figure 13: Year-on-year Performance on Trading Across Borders

While there has been so much activity taking placein order to enhance the facilitative role of theAuthority across the border, this has not been felt ininternationally monitored indicators. The WorldBank Doing Business (WBDB) Report rankedLesotho 39 out of 190 countries under the tradingacross borders indicator (see Figure 13). This was a

slight difference from the 2016 ranking of 36. Thisshows that no growth in reforms was witnessedunder trading across borders in 2017. This is furtherconfirmed by the distance to frontier score of 91.6 in2017, compared to that of 91.7. Lesotho’s rankingon this indicator still remains one of the highestscores, as it is close to the frontier (100).

A comparison of trade facilitation ranking within theSACU region shows Lesotho as the second bestperformer in facilitating for trade. The best appears to

be the Kingdom of Eswatini with the score of 31,followed by Lesotho at 39, and last South Africa witha score of 139.

Figure 14: SACU Members Rating on Trading Across Borders

Source 13: World Bank Doing Business 2017

Source 14: World Bank Doing Business 2017

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Caledonspoort Borderpost

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Outcome 4: Ensure Financial Sustainability

Throughout our operations in this year, we haveincurred 6 Lisente to collect 1 Loti of tax revenue. Thiswe gauge against the international benchmark of 1Lisente for collection of 1 Loti. The implication is that,it has been costly for us to collect revenue. Comparedto 2016-17 FY, the cost of collection has increasedfrom 6.0 percent to 6.1 percent in 2017-18 FY whichis roughly 1 Lisente more.

The increase is attributable to a 6.7 percent increasein operational cost while revenue remitted remainedconstant at 0.03 percent. The growth in operatingcosts has been mainly driven by inspection andenforcement expenses followed by vehicle runningexpenses which have grown at 118.9 percent and42.8 percent respectively.

Tax to GDP decreased from 17.9 percent to 17.0 per-cent in 2017-18 FY. Tax revenue as a percentage ofGDP (tax-to-GDP ratio) was17.0 percent. The figure

fell by 0.8 percentage points from 17.9 percentrecorded in 2016-17 FY. This is the lowest ratiorecorded since 2009-10 FY (17.4 percent).

Tax to GDP Ratio

We use tax-to-GDP and cost of collection to measure our efficiency in collecting taxes

Figure 15: Cost of Collection Overtime

Cost of Collection



25

Outcome 5: Increase Staff Satisfaction

Development of staff capacity

We have invested in programmes that provide a mixof skills, knowledge, experience and attitudes that weneed within our ten divisions to help us work in morecustomer centric, intelligent and agile ways.

Over 70.0 percent of training programmes were heldin-house with training provided mostly by our capable

staff. The training covered Basic Income Tax; BasicCustoms Training; Intelligence and Investigations,Customs Administrations, Communications Skills andUnion Management. Only 48.0 percent of the trainingplan was implemented during this period, due to theneed to redeploy staff to focus on revenue collectioninitiatives.

The LRA employ different ways to engage employees to enhance communication and service delivery.

26

Staff turn-over

The LRA structure has 766 approved posts. Due to theimminent need for restructuring there was a generalfreezing of positions. Thus, at the beginning of the year,the staff complement was 690. During the periodunder review, there were 18 resignations, thusdecreasing our staff complement to 672. The most

commonly cited reasons for resignation were lack ofgrowth opportunities as well as lack of direction withinthe LRA. Currently, our staff turn-over is at 2.2 percent.Figure 16 shows the trend in staff turn-over thatoccurred during the period under review.

In 2014-15 FY, the staff turn-over was at 1.9 percent,which was just below the set target of 2 percent perannum. This increased steadily reaching a peak of 2.7percent in 2016-17, then, declined to 2.2 percent in2017-18 FY. Increase in staff turn-over was attributed

to a high demand for IT professional in the market aswell as uncompetitive remuneration offered by LRAthat had stagnated over the years - based on staff exit in-terviews.

In 2014-15 FY, the percentage of staff who met theirperformance was at 92.2 percent. This rose slightly thefollowing year and reached a peak of 99.8 percent in2016-17 FY. In 2017-18 FY, performance was at 80.0

percent, which was the lowest recorded rate in the lastfour years. This correlates with the results attained fromthe 2017 Staff Satisfaction Survey, which reported lowstaff morale.

2014 - 15 2015 - 16 2016 - 17 2017 - 18

% of staff that met 92.2% 93.5% 99.8% 80%

Figure 16 Staff Turnover Against Target



Staff meeting performance targetsTable 1: Percentage of Staff Meeting Performance Targets

27

Corporate Social Investment

In our commitment to the socio-economicdevelopment of Lesotho, we introduced a CorporateSocial Investment (CSI) programme aligned withnational priorities in partnership with otherinstitutions. The intention of the programme is to giveback to the community.

In this year, we supported Bacha EntrepreneurshipProject. This project intends to breed a crop ofentrepreneurs who can inspire change and prosperityby becoming job creators instead of job seekers.

Currently, in its third Phase, the project sponsored by

LRA, BEDCO and Standard Lesotho Bank continuedto the second leg of the 2017 edition with a twoweeks training for top twenty five (25) applicants.

The training followed the call for proposals that wasissued in May 2017 targeting unemployed graduateyouth, between the ages of 21 to 35 years. The trainingfocused on equipping participants with a wide range ofentrepreneurial skills. Winners shared the prize moneyto kick-start their entrepreneurship projects.

The 2017 Beneficiaries of Bacha Entrepreneurship Project.

28

Implementation of critical issues

The Revenue Authority continued to work on itsprojects as approved in the 2017/18 financial year.Below are the projects implemented during 2017-18 financial year.

MAYIBUYE | Increase revenue collectionsthrough enforced compliance anddeterrence on tax evasion andfraud.

CUSTOMS AND TAX MODERNISATION |Modernise LRA’s processes and systems

SANI BORDER REFURBISHMENT |Refurbish Sani Border to facilitatemodern border traffic

OSAS REVIEW | Address structural anomaliesbrought by OSAS.

MAYIBUYE

Projects implemented

29

The objective of this project was to increase revenuecollection. During September 2017 to March 2018business operations in revenue collection were driven

in a project led approach which yielded a totalcollection of M35.9 million against target of M355.28million by the end of the financial year.

Revenue collection – M35,9 M against target of M355,28 M

Mayibuye

LRA Staff Brainstorming Sessions

The LRA employees in the Small and Medium Taxpayers Departments hard at work.

30

Tax and Customs Modernisation

The objective of the Tax

Modernisation is to achieve the

following:

• To introduce all categories on

Taxpayers to online services.

• To reduce average time taken to

register, file tax returns, pay

refunds and issue Tax Clearance

Certificate (TCC).

• To reduce average costs related to

enquiring about taxes.

• To reduce average costs related to

traveling to and from LRA for

services.

The Programme aims to improve

domestic tax collections. This will

be achieved through:

• Introducing user friendly systems,

processes and procedures for

clients and LRA users.

• Simplified Tax Laws for all

Taxpayer segmentations within

the economy of Lesotho,

comprising of Large, Medium

and Small Taxpayers, including

the Informal Sector.

• Reduced cost of compliance and

cost of collection.

The programme completed the

design phase whereby components

to be focused on include; E-Taxation,

Small Taxpayers and informal

Taxpayer Regime.

31

Border rehabilitation is a priority for LRA this 2017-18financial year. The objective is to provide improvedborder infrastructure that can facilitate easy movementof goods at ports of entry.

Sani Border-Post Refurbishment project started in2017-18 with drafting of designs and development ofcontract. It is planned to take two years to be

completed. The Ministry of Finance has allocated M10million to LRA for rehabilitation.

Going forward the plan is to sign the contract with Principal Agent and start to procure the contractor. Construction is expected to be completed in 2019-20.

Sani Border Refurbishment

The current Sani Pass Border Post

Proposed Sani Pass Border Post

32

The review’s aim was to achieve the following objectives:

• To develop a structure that provides right numbers in the right places.

• To profile and grade jobs equitablyand in line with operational requirements.

• To achieve alignment of the structure and remuneration that is equitable, sustainable and commensurate with local market.

A consultancy firm was contracted tosupport the project. A situational analysisand evaluation on the current structurewere completed which would be aninput to the design of the organisationalstructure. A decision was made to ceasethe project to await development of thecorporate strategy 2018-2023.

OSAS Review

Clients paying tax at the LRA Banking Hall.

33

Organisational StructureThe diagram below shows the high-level organisational structure of the LRA.

LRA Board

Commissioner Domestic Taxes

Chief Planning andModernisation Officer

Chief HumanResources Manager

Chief AssuranceOfficer

Chief Legal andPolicy Officer

Chief Finance Officer

Commissioner Customs

Commissioner Enforcement

Chief CorporateServices Officer

Commissioner General

The Caledonspoort Border Post caters for border services between the northern districts of Lesotho andFourie'sburg, Bethlehem, Kwazulu Natal and other parts of South Africa

34

• Strategic Management Committee (SMC)

The committee is responsible for advising EXCOwith respect to matters concerning thedevelopment, implementation and monitoring ofthe LRA strategy, annual business plans includingsupporting budgets and manpower plans. Thecommittee is also responsible for providingoversight of the enterprise risk management process.

• Remuneration CommitteeThe committee is responsible for overseeing theremuneration, bonus and benefits, policies andpractices in the Authority.

• Assurance CommitteeThe committee is responsible for advising EXCOin relation to the effective governance of the

Authority. It is also responsible for ensuring theimplementation of internal audit recommendationsand the alignment of the LRA’s policies to strategy.

• Tender CommitteeThe committee is responsible for makingnecessary procurement decisions in order toensure that goods and services procured in theLRA achieve value for money.

• Revenue Management Committee (RMC)The committee’s mandate is to monitor LRA’srevenue performance and oversee effectivemanagement of Taxpayer compliance.

The Deputy Prime Minister and Minister of Parlimentary Affairs, Hon. Monyane Moleleki (right) and theHounorable Minister of Finance Dr. Moeketsi Majoro officially launching the LRA Strategy 2018-23.

Our executive leadership team leads and guides us

LRA EXCO Sub-Committees and responsibilities

The operations of the LRA are governed by an Executive Committee (EXCO) which is made up of heads ofdivisions and chaired by the Commissioner General. The EXCO has the following sub-committees which help itcarry out its mandate:

35

We organise ourselves by services we provide

We work hand-in-hand across business groups, sharing information with one another and combining our skillsand knowledge to improve outcomes for our clients, stakeholders and ourselves.

Corporate Services

Provides facilities, tools and transport

for our people, supports and maintains

our systems.

EnforcementImproves

taxpayer compliance and provide

investigative and intelligence services.

Planning and Modernisation

Strategic management services and

business improvements.

AssuranceServices

Provides assurance on Governance and

control processes to combat corruption

and reduce risks.

FinanceProvide efficient

and effective financial management

services.

CustomsProvide modern, fast and efficient

border managementservices.

Domestic Taxes

Enhance voluntary compliance and

meet annual revenue targets set by Government.

Human Resources

ManagementEnsures that we have competent people,

in the right numbers, with the right skills.

Legal and Policy Provides

Corporate legal and advisory services to our organisation.

36

Table of contents

Page

Table of contents 36

Directors’ statement of responsibility and approval 37

Directors Report 38

Report of the Auditor General 40

Statement of financial position 42

Statement of comprehensive income 43

Statement of changes in capital and reserves 44

Cash flow statement 45

Statement of accounting policies 46

Notes to the financial statements 55

Staff serving clients at Maseru Advice Centre

37

Directors’ statement of responsibility and approval

The Board of Directors of the Lesotho Revenue Authority (LRA) is required to maintain adequate accountingrecords and is responsible for the content and integrity of the financial statements and related financialinformation included in this report. It is the Board’s responsibility to ensure that the financial statements fairlypresent the state of affairs of the LRA at the end of the financial year and the results of its operations and cashflows for the year then ended, and in conformity with International Financial Reporting Standards (IFRS) and inthe manner required by the Lesotho Revenue Authority Act No. 14 of 2001.

The financial statements are prepared in accordance with the IFRS and are based upon appropriate accountingpolicies consistently applied and supported by reasonable and prudent judgements and estimates.

The Board of Directors acknowledges that it is ultimately responsible for the system of internal controls establishedby the LRA and places considerable importance on maintaining a strong control environment. To enable it to meetthese responsibilities, the Board sets standards for internal controls aimed at reducing the risk of error or loss ina cost effective manner. The standards include the proper delegation of responsibilities within a clearly definedframework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level ofrisk. These controls are monitored throughout the LRA and all employees are required to maintain the highestethical standards in ensuring the LRA’s business is in a manner that in all reasonable circumstances is abovereproach. The focus of risk management in the LRA is on identifying, assessing, managing and monitoring allknown forms of risks across the LRA. While operating risk cannot be fully eliminated, the LRA endeavors tominimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviours are applied andmanaged within predetermined procedures and constraints.

The Board is of the opinion that the system of internal control provides reasonable assurance that the financialrecords may be relied on for the presentation of the financial statements. However, any system of internalfinancial control can only provide reasonable assurance and not absolute assurance against material misstatementor loss.

The Board has reviewed the LRA’s cash flow forecast for the year to 31 March 2018 and is satisfied that the LRAhas access to adequate resources to continue in operational existence for the foreseeable future. This is based onthe understanding that the Minister of Finance will secure adequate funding for the LRA to meet its operationalneeds. The external Auditors are responsible for independently reviewing and reporting on the LRA’s financialstatements.

The financial statements set out on pages 42 to 63 which have been prepared on the going concern basis, andwere approved by the Board of Directors on 26 July 2018 and signed on its behalf by:

Chairman Director

38

Directors’ report

1. Nature of business

Lesotho Revenue Authority (LRA) is a semi-autonomous statutory body established by an Act of Parliamentin terms of the Lesotho Revenue Authority Act No: 14 of 2001. LRA is charged with the mandate of a)assessing and collecting tax on behalf of the Government, and b) administering and enforcing the revenuelaws, which include the Customs and Excise, Income Tax and Value Added Tax. The LRA therefore collectsinland taxes, duties and excise on behalf of the Government of Lesotho and transfers the said to the GOL ona weekly basis.

For financial reporting purposes, the financial statements of the LRA are reported as LRA Own Accounts. TheLRA Own Accounts cover those operational revenues, such as funding received from Government, whichare managed by LRA and utilised in running the organisation. The amounts in the collection accounts whichwere nit transferred to the GOL accounts as at 31 March 2018 are included as part of cash and cashequivalents and as liability i.e. amounts to be remitted to GOL. The purpose of the distinction is to facilitate,among other things, the assessment of the administrative efficiency of LRA in achieving its mandate.

2. Financial performance

The recurring expenditure for the year amounted to M386 107 718 (2017: M340 150 235). The Authorityincurred capital expenditure of M8 069 737 (2017: M65 678 349) on property, plant and equipment. Fulldetails of the financial results are set out on pages 42 to 63.

3. Cashflow for the year

Own Cash and cash equivalents at the end of the financial year were M254 123 628 million (2017:M142 057 118 million). A detailed statement of cash flows is on page 45.

4. Transfer of fixed assets to the Authority by Government

In terms of the Memorandum of Understanding between the Government of Lesotho (Ministry of Finance)and the Lesotho Revenue Authority provided for the transfer of all assets (non-movable and movable) free ofcharge, previously held by the Departments for Customs and Excise, Sales Tax and Income Tax to the LesothoRevenue Authority. These assets have been revalued by Lethola Cost Associate

5. Corporate governance issues

Corporate Governance:

In compliance with good corporate governance principles, the Authority has operated and maintained thefollowing Board Committees: Audit Committee, Finance and Tender Committee, Human Resource and EthicsCommittees which remained effective throughout the accounting period.

Social responsibility:

The Authority is totally committed to putting back into the community it serves. This is done through theimplementation of its Corporate Social Responsibility programme.

39

Directors’ report

6. Board MembersThe Board Members are appointed by the Minister of Finance. The following members served on theboard during the year under review:

Up to 30 June 2017

Lehlomela Mohapi (Mr) Chairman Motena Tsolo (Mrs) FAC Chairman Mamotselisi Khiba (Adv.) ICTC ChairmanLindiwe Sephomolo (Adv) HRRC ChairmanTsireletso Mojela (Mrs) MemberIdia Penane (Mrs) Commissioner General (a.i.)

From 1st November 2017:

Robert Likhang (Mr) ChairmanLibako Leisanyane (Mrs) Vice Chairman Lefu Mokaoane (Mr) FAC Chairman Chabeli Ramolise (Mr) ICTC Chairman Bohlale Phakoe (Mr) HRRC ChairmanTsireletso Mojela (Mrs) MemberLindiwe Sephomolo (Adv) Member Thabo Khasipe (Mr) Commissioner General

7. BankersThe following financial institution was the banker of the Authority during the year:

Business address Postal addressStandard Lesotho Bank Lesotho Bank Building, Kingsway, MaseruNedbank Head Office 115-117 Griffith Hill Kingsway Street

P.O. Box 1001 Maseru 100

First National Bank Pioneer Road Maser

Lesotho Post Bank Post Office Building, Kingsway Road, Maseru, Lesotho

8. Investment ManagersThe following financial institutions were the investment managers of the Authority during the year:

Business addressStanlib LesothoGround Floor,MCG Office Park

9. Business and postal address of the Authority Ground Floor, Government Complex Maseru

10. AuditorsThe auditors of the Authority are:

Moores Rowland on behalf of the Auditor General of LesothoSentinel Park United Nations RoadP.O. Box 1252Maseru 100 Lesotho

40

Report of the Auditor-General on the Financial Statements of

Lesotho Revenue Authorityfor the year ended 31 March 2018

Opinion

Moores Rowland Chartered Accountants under Section 24(1) of the Audit Act 2016, have audited the financialstatements of Lesotho Revenue Authority (the Authority) set out on pages 42 to 63, which comprise the statementof financial position as at 31 March 2018 and the statement of comprehensive income, statement of changes inequity and statements of cash flows for the year then ended, and notes to the financial statements, including asummary of significant accounting policies and other explanatory information.

In my opinion, the accompanying financial statements present fairly, in all material respects, the financial positionof the Authority as at 31 March 2018, and its financial performance and its cash flows for the year then ended inaccordance with International Financial Reporting Standards (IFRSs) and in accordance with the requirements ofthe Lesotho Revenue Authority Act, 2001.

Basis for opinion

I conducted my audit in accordance with International Standards on Auditing (ISAs). My responsibilities underthese standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statementssection of my report. I am independent of the Authority in accordance with the International Ethics StandardsBoard for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethicalrequirements that are relevant to my audit of the financial statements in Lesotho, and I have fulfilled my otherethical responsibilities in accordance with these requirements and the IESBA Code. I believe that the auditevidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

Responsibilities of Management and those charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance withIFRSs, and for such internal control as management determines is necessary to enable the preparation of financialstatements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Authority’s ability to continueas a going concern, disclosing, as applicable, matters related to going concern and using the going concern basisof accounting unless management either intends to liquidate the Authority or to cease operations, or has norealistic alternative but to do so. Those charged with governance are responsible for overseeing the Authority’sfinancial reporting process.

Auditor’s responsibilities for the Audit of the Financial Statements

My objectives are to obtain reasonable assurance about whether the financial statements as a whole are freefrom material misstatement, whether due to fraud or error, and to issue an audit report that includes my opinion.Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conjuncted in accordancewith ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or errorand are considered material if, individually or in the aggregate, they could reasonably be expected to influencethe economic decisions of users taken on the basis of these financial statements.

41

As part of an audit in accordance with ISAs, I exercise professional judgment and maintain professional skepticismthroughout the audit. I also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraudor error, design and perform audit procedures responsive to those risks, and to obtain audit evidence thatis sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a materialmisstatement resulting from fraud is higher than for one resulting from error, as fraud may involvecollusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Authority’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimatesand related disclosures made by the management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and,based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the authority’s ability to continue as a going concern. If Iconclude that a material uncertainty exists, I am required to draw attention in my audit report to therelated disclosures in the financial statements or, if such disclosures are inadequate, to modify myopinion. My conclusions are based on the audit evidence obtained up to the date of my audit report.However, future events or conditions may cause the Authority to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including thedisclosures, and whether the financial statements represent the underlying transactions and events in amanner that achieves fair presentation.

I communicate with those charged with governance regarding, among other matters, the planned scope andtiming of the audit and significant audit findings, including any significant deficiencies in internal control that Iidentify during my audit.

I also provide those charged with governance with a statement that I have complied with relevant ethicalrequirements regarding independence, and to communicate with them all relationships and other matters thatmay reasonably be thought to bear on my independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, I determine those matters that were ofmost significance in the audit of the financial statements of the current period and are therefore the key auditmatters. I describe these matters in my audit report unless law or regulation precludes public disclosure aboutthe matter or when, in extremely rare circumstances, I determine that a matter should not be communicated inmy report because the adverse consequences of doing so would reasonably be expected to outweigh the publicinterest benefits of such communication.

Lucy L. Liphafa (Mrs) 30 July 2018 Auditor-General

42

March MarchNotes 2018 2017

M M

ASSETS

Tangible assetsProperty, plant and equipment 2.1 226 818 352 250 441 879

Intangible assetsSoftware 2.2 62 493 366 83 568 445

Current assetsAccounts receivable 3 1 965 209 1 361 034Bank and cash 4 93 437 998 43 122 558Collections bank account balances 5 160 685 630 98 934 560

Total current assets 256 088 837 143 418 152

TOTAL ASSETS 545 400 554 477 428 477

CAPITAL AND LIABILITIES

Capital and reservesGOL capital injection and project grants 6 254 603 749 301 797 896Accumulated surplus/deficit 68 113 063 28 808 499Trust account 7 2 508 309 2 160 584

Total capital and reserves 325 225 121 332 766 979Non-current liabilitiesProvisions for terminal benefits 8.1 33 186 716 21 402 327Payable to bank 9 5 690 869 5 551 668

38 877 584 26 953 995

Current liabilitiesProvision for leave pay 8.2 3 540 504 3 300 935Collections account balances remitable 5 160 685 630 98 934 560Accounts payable and accruals 11 14 710 369 13 594 537Payable to bank 10 2 361 ,346 1 877 471

Total current liabilities 181 297 848 117 707 504

TOTAL CAPITAL AND LIABILITIES 545 400 554 477 428 477

Statement of financial positionas at 31 March 2018

43


ASSETS M M

INCOME

Government funding 379 390 643 338 623 163Interest received 5 411 258 2 531 710Tollgate fees Income 5 734 591 5 981 906Storage income 514 957 158 946Commission received 243 37 5 217 238Other income 1 107 681 268 110Amortisation project funds 32 789 550 8 307 296

Total income 425 192 055 356 088 369

EXPENDITUREStaff related expenses 239 682 829 233 750 284Administration expenses 129 124 404 96 323 070Inspection and enforcement expenses 8 456 686 3 864 470Motor vehicle running costs 8 843 798 6 212 411

Total expenditure 386 107 718 340 150 235

Surplus/deficit for the year 39 084 337 15 938 134

Statement of comprehensive incomefor the year ended 31 March 2018

44

Trust GOL Project Accumulated Totalaccount funding surplus

Notes M M M M

Balance as at 31 March 2015 1 597 288 222 709 733 32 573 759 256 880 780

Trust funds 231 419 0 0 231 419Funds from government 0 36 300 000 0 36 300 000Grants-project funding 0 28 647 102 0 28 647 102Prior year adjustment 0 (1 396 332) 969 386 (426 946)Current year armotisation 0 (3 865 026) 0 (3 865 026)Deficit for the period 0 0 (27 076 329) (27 076 329)


Trust funds 331 878 0 0 331 878Grants-Government 0 32 158 493 0 32 158 493Prior year adjustment 0 0 6 403 549 6 403 549Current year armotisation 0 (12 756 076) 0 (12 756 0 6)Surplus for the period 0 15 938 134 15 938 134


Trust funds 347 724 0 0 347 724Grants-Government 0 (14 404 596) 0 (14 404 596)Prior year adjustment 16 0 0 220 227 220 227Current year armotisation 17 0 (32 789 550) 0 (32 789 550)Surplus for the period 0 0 39 084 337 39 084 337


Statement of changes in capital and reservesfor the year ended 31 March 2018

45


M M

Cash flows from operating activitiesSurplus/(Deficit) for the year 39 084 337 15 938 134Adjustments for item not involving cash movement:Interest (received)/paid (5 411 258) (2 531 710)Depreciation 38 274 906 15 627 702(Decrease) increase in provisions 12 023 957 3 493 204Prior year adjustments 16 220 227 6 403 550(Gain)/loss on fixed asset disposal (987 831) (166 742)

Surplus /(Deficit) before changes in working capital 83 204 338 38 764 137(Decrease)/ Increase in accounts receivable (604 175) 29 304 471(Decrease) Increase in accounts payable 1 115 832 (13 319 875)Collections accounts 61 751 069 (16 128 257)

Net cash inflow from operating activities 145 467 065 38 620 477

Cash flows from investing activitiesInterest received 5 411 258 2 531 710Purchase of property, plant and equipment (8 069 737 ) (65 678 349)Movement from PPE to operating costs 14 464 389 254 659Proceeds on disposal of assets 1 016 878 176 415

Net cash outflow from investing activities 12 822 788 (62 715 565)

Cash flows from financing activitiesGOL capital funding (47 194 146) 45 746 582Funds account 347 726 331 876(Decrease)/Increase payable to loan 623 076 7 429 139

(46 223 344) 53 507 597Increase/(decrease) in cash and cash equivalents 112 066 508 24 875 292Cash and cash equivalents at beginning of the year 142 057 119 117 181 826

Cash and cash equivalents at end of the period 254 123 627 142 057 118

Cash flow statementfor the year ended 31 March 2018

46

Statement of accounting policiesfor the year ended 31 March 2018

1.0 Business Activity

Lesotho Revenue Authority (LRA) is a semi-autonomous statutory body established by an Act of Parliamentin terms of the Lesotho Revenue Authority Act No: 14 of 2001. LRA is charged with the mandate of a)assessing and collecting tax on behalf of the Government, and b) administering and enforcing the revenuelaws, which include the Customs and Excise, Income Tax and Value Added Tax. The LRA therefore collectsinland taxes, duties and excise on behalf of the Government of Lesotho and transfers the said to the GOLon a weekly basis.

1.1 Accounting policies

The annual financial statements incorporate the principal accounting policies set out below:

1.2 Basis of Preparation

1.2.1 Statement of compliance The financial statements are consistent with International Financial Reporting standards (IFRS), as adoptedby the International Accounting Standards Board and in compliance with the Lesotho Revenue AuthorityAct No: 14 of 2001.

1.2.2 Basis of measurementThe financial statements have been prepared on the historical cost basis.

1.2.3 Functional and presentation currencyThese financial statements are presented in Maloti, which is the authority's functional currency. Allfinancial information presented in Maloti has been rounded to the nearest loti.

1.2.4 Use of estimates and JudgementsThe preparation of the financial statements in conformity with IFRSs requires management to make judge-ments, estimates and assumptions that affect the application of accounting policies and the reportedamounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimatesare recognised prospectively.

1.2.4.1 JudgementsInformation about critical judgements in applying accounting policies that have the most significanteffect on the amounts recognised in the financial statements are included in the following note:

• Note 11 -Plant and equipment (useful lives)• Note 21 - Receivables impairment allowance

1.2.4.2 Assumptions and estimation uncertaintiesInformation about assumptions and estimation uncertainties that have a significant risk of resulting in amaterial adjustment in the Authority’s next financial statements are included in the notes.

47


1.2 Basis of Preparation (continued)

1.2.4.3 Measurement of fair value

A number of the Authority’s accounting policies and disclosures requite the measurement of fair values,for both financial and non-financial assets and liabilities.

The Authority has established a control framework with respect to the measurement of fair values.

When measuring the fair value of an asset or a liability, the Authority uses market observable data as faras possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputsused in the valuation techniques as follows:

Level I quoted prices (unadjusted) in active markets for identified assets or liabilities.

Level 2 Inputs other than quoted prices included under Level I that are observable for the asset orliability, either directly (i.e. As prices) or indirectly (i.e. Derived from prices).

Level 3 Inputs from assets and liabilities that are not based on observable market data (on-observableinputs).

If the inputs used to measure the fair value of an asset or a liability might be categorised in differentlevels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the samelevel of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Authority recognises transfers between levels of the fair value hierarchy at the end of the reporting pe-riod during which the change has occurred.

Further information about assumptions made in measuring fair values is included in note 15.5.1

1.3 Adoption of standards in future financial periods

(a) New standards, amendments and interpretations which are relevant to the Authority’s operations

• IFRS 16 - ‘Leases effective 1 January 2019 and replaces IAS 17. The new standard provides a single lesseeaccounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating orfinance leases.

The new standard could have a material impact on the Authority’s financial statements and may be appliedwith full retrospective effect or under a modified retrospective approach with an adjustment made to theopening balance of retained income. Early adoption is permitted. The Authority has not yet quantified the po-tential impact of the new standard on the Authority.

• IFRS 15, ‘Revenue recognition’,effective 1 January 2018. IFRS 15 replaces IAS 18 Revenue and providesa single, principles based five-step model to be applied to all contracts with customers. The steps involveidentifying the contract, identifying the performance obligations under the contract, determining the trans-action price, allocating the transaction price to the performance obligations in the contract, and recognisingrevenue when the entity satisfies a performance obligation.

The new standard could have a material impact on the Authority’s financial statements and may be appliedwith full retrospective effect or under a modified retrospective approach with an adjustment made to theopening balance of retained income. Early adoption is permitted.

• IFRS 13, ‘Fair value measurement’, aims to improve consistency and reduce complexity by providing aprecise definition of fair value and a single source of fair value measurement and disclosure requirements foruse across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extendthe use of fair value accounting but provide guidance on how it should be applied where its use is alreadyrequired or permitted by other standards within IFRSs or US GAAP.

48


1.3 Adoption of standards in future financial periods (continued)

• IFR 9, 'Financial Instruments' effective 1 January 2018 replacing IAS 39. The standard requires financial assetsThe standard contains new hedge accounting requirements aimed at better aligning the accountingtreatment with the risk management strategy. In addition, the standard replaces the incurred loss impairmentmodel in IAS 39 with an expected loss model. It will no longer be necessary for a credit event to haveoccurred before credit losses are recognised.

The new standard could have a material impact on the Authority’s financial statements. The Authority hasnot yet quantified the potential impact of the new standard on the Authority.

Management is currently assessing the impact of the application of these new standards, amendments andinterpretations on the Authority’s financial statements in the period of initial application. At this time, theadoption of these standards and interpretations is only expected to have an impact on the classification anddisclosure of items in the Authority’s financial statements.

(b) New standards, amendments and interpretations which are not relevant to the Authority’s operations

• IFRS 11- ‘Joint arrangements is a more realistic reflection of joint arrangements by focusing on the rightsand obligations of the arrangement rather than its legal form. There are two types of joint arrangement:joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets andobligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue andexpenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement andhence equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed.

• IAS 27 (revised 2011), ‘Separate financial statements’ IAS 27 (revised 2011) includes the provisions onseparate financial statements that are left after the control provisions of IAS 27 have been included in thenew IFRS 10.

• IAS 19, ‘Employee benefits’ was amended in June 2011. The impact on the Authority will be as follows:to eliminate the corridor approach and recognise all actuarial gains and losses in OCI as they occur; toimmediately recognise all past service costs; and to replace interest cost and expected return on plan assetswith a net interest amount that is calculated by applying the discount rate to the net defined benefit liability(asset).

• Amendments to IFRS 7, ‘Financial instruments: Disclosures’ on derecognition - This amendment willpromote transparency in the reporting of transfer transactions and improve users’ understanding of the riskexposures relating to transfers of financial assets and the effect of those risks on an entity’s financial position,particularly those involving securitisation of financial assets.

• Amendment to IFRS 1, ‘First time adoption’, on fixed dates and hyperinflation - These amendmentsinclude two changes to IFRS 1, ‘First-time adoption of IFRS’. The first replaces references to a fixed date of1 January 2004 with ‘the date of transition to IFRSs’, thus eliminating the need for entities adopting IFRSsfor the first time to restate derecognition transactions that occurred before the date of transition to IFRSs.The second amendment provides guidance on how an entity should resume presenting financial statementsin accordance with IFRSs after a period when the entity was unable to comply with IFRSs because itsfunctional currency was subject to severe hyperinflation.

• Amendment to IAS 12, ‘Income taxes’ on deferred tax- IAS 12, ‘Income taxes’, currently requires anentity to measure the deferred tax relating to an asset depending on whether the entity expects to recoverthe carrying amount of the asset through use or sale. It can be difficult and subjective to assess whetherrecovery will be through use or through sale when the asset is measured using the fair value model in IAS40, ‘Investment property’. This amendment therefore introduces an exception to the existing principle forthe measurement of deferred tax assets or liabilities arising on investment property measured at fair value.As a result of the amendments, SIC 21, ‘Income taxes - recovery of revalued non-depreciable assets’, willno longer apply to investment properties carried at fair value. The amendments also incorporate into IAS12 the remaining guidance previously contained in SIC 21, which is withdrawn.


1.3 Adoption of standards in future financial periods (continued)

• Amendment to IAS 1, ‘Financial statement presentation’ regarding other comprehensive income - Themain change resulting from these amendments is a requirement for entities to group items presented in‘other comprehensive income’ (OCI) on the basis of whether they are potentially reclassifiable to profit orloss subsequently (reclassification adjustments). The amendments do not address which items are presentedin OCI.

1.4 Property, plant and equipment

Owned assets recognition and measurementItems of property, plant and equipment are stated at cost, or deemed cost, less accumulated depreciationand impairment losses. Where parts of an item of furniture and equipment have different useful lives, theyare accounted for as separate items of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparingthe proceeds from disposal with the carrying amount of property, plant and equipment, and is recognisednet within other income in profit or loss.

Subsequent expenditureSubsequent expenditure is capitalised only if it is probable that future economic benefits associated withthe expenditure will flow to the Authority.

DepreciationDepreciation is charged to comprehensive income on the straight-line basis over the estimated useful livesof each part of the relevant asset.

Rate of depreciating assets

The rates that assets are depreciated at on a monthly basis are as follows:-

Category Useful life Tangible assets (in years)

Motor vehicles 5

Furniture and fittings 10

Office equipment 3 to 7

Specialised equipment 5

Security measures 5 to 10

Bins and containers 5

Emergency equipment 5 to 20

Buildings 50

The residual value, if not indignificant, is re-assessed on tangible assets

Category Useful life Tangible assets (in years)

Software (ETPM and ASY CUDA) 5

ImpairmentThe carrying amount of the Authority's assets are reviewed at each balance sheet date to determine whetherthere is any indication of impairment. If there is any indication that an asset may be impaired, its recover-able amount is estimated. The recoverable amount is the higher of its net selling price and its value in use.

49

50


1.4 Property, plant and equipment (continued)

In assessing value in use, the expected future cash flows from the asset are discounted to their present valueusing a pre-tax discount rate that reflects current market assessments of the time value of money and the risksspecific to the asset. An impairment loss is recognised whenever the carrying amount of an asset exceeds itsrecoverable amount.ImpairmentThe carrying amount of the Authority's assets are reviewed at each balance sheet date to determine whetherthere is any indication of impairment. If there is any indication that an asset may be impaired, its recoverableamount is estimated. The recoverable amount is the higher of its net selling price and its value in use.

In assessing value in use, the expected future cash flows from the asset are discounted to their present valueusing a pre-tax discount rate that reflects current market assessments of the time value of money and the risksspecific to the asset. An impairment loss is recognised whenever the carrying amount of an asset exceeds itsrecoverable amount.

1.5 Financial instruments

Non-derivative financial assetsThe Authority initially recognises loans and receivable deposits on the date that they are originated. All otherfinancial assets (including assets designated at fair value through profit or loss) are recognised initially on thetrade date at which the Authority becomes a party to the contractual provisions of the instrument.

The Authority derecognises a financial asset when the contractual rights to the cash flows from the assetexpire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction inwhich substantially all the risks and rewards of ownership of the financial assets are transferred. Any interestin transferred financial assets that is created or retained by the Authority is recognised as a separate asset orliability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial positionwhen, and only when, the Authority has a legal right to offset the amounts and intends either to settle on anet basis or to realise the assets and settle the liability simultaneously.

The Authority has the following non-derivative financial assets:

Trade and other receivables.Trade and other receivables are financial assets with fixed determinable payments that are not quoted on anactive market. Such assets are recognised initially at fair value plus any directly attributed transactions costs.Subsequent to initial recognition trade and other receivables are measured at amortised cost using the effec-tive interest method, less any impairment losses.

Cash and cash equivalentsCash and cash equivalents comprise cash balances and call deposits with original maturities of three monthsor less. Bank overdrafts that are repayable on demand and form an integral part of the Authority's cash man-agement are included as part of cash and cash equivalents for the purposes of the statement of cash flows.

Non-derivative financial liabilitiesNon-derivative financial liabilities are recognised initially on the trade date at which the Authority becomesa party to the contractual provisions of the instrument.

The Authority derecognises a financial liability when its contractual obligations are discharged or cancelledor expire.

The Authority has the following non-derivative financial liabilities: loans and borrowings, and trade and otherpayables, accruals and collection accounts at their nominal value.

Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs.Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effectiveinterest method.

51

1.5 Financial instruments (continued)

ImpairmentA financial asset not carried at fair value through profit or loss is assessed at each reporting date to determinewhether there is objective evidence that it is impaired. A financial asset is impaired if objective evidenceindicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had anegative effect on the estimated future cash flows of that asset that can be reliably measured.

Objective evidence that financial assets are impaired can include default or delinquency by a debtor,restructuring of an amount owing to the Authority on terms that the Authority would not consider otherwise,indications that a debtor or issuer will enter bankruptcy, the disappearance of an active market for a security.

The Authority considers evidence of impairment for receivables at both a specific and collective level. Allindividually significant receivables are assessed for specific impairment. All individually significant receivablesfound to be specifically impaired are then collectively assessed for any impairment that has been incurred butnot yet identified. Receivables that are not individually significant are collectively assessed for impairment bygrouping together receivables with similar risk characteristics.

In assessing collective impairment, the Authority uses historical trends of the probability of default, tim-ing of recoveries and the amount of loss incurred, adjusted for management's judgement as to whethercurrent economic conditions are such that the actual losses are likely to be greater or less than suggestedby historical trends.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the differencebetween its carrying amount and the present value of the estimated future cash flows discounted at the asset'soriginal effective interest rate. Losses are recognised in profit or loss and reflected as an allowance accountagainst receivables. Interest on impaired assets continues to be recognised through the unwinding of thediscount. When a subsequent event causes the amount of the impairment to decrease, the decrease inimpairment loss is reversed through profit or loss.

1.6 Income

Income comprises the fair value of the consideration received or receivable for services in the ordinary courseof the Authority's activities.

The Authority recognises income when the amount of income can be reliably measured, it is probable thatfuture economic benefits will flow to the Authority and specific criteria have been met for each of theAuthority's activities as described below. The amount of revenue is not considered to be reliably measureduntil all contingencies relating to the transaction have been resolved. The Authority bases its estimates onhistorical results, taking into consideration the type of customer, the type of transaction and the specifics ofeach arrangement.

Income comprises of funds received from the Government of Lesotho, interest on investments, storage income,grants and commission received during the period. Income is accounted for using the accrual basis ofaccounting and taking into the terms of relevant agreements. The GoL funded some of the projects which theLRA needed to implement in the current financial year whereas some needed donor assistance.

1.7 Provisions

Provisions are recognised when the Authority has a present legal or constructive obligation as a result of pastevents, for which it is probable that an outflow of economic benefits will occur, and where a reliable estimatecan be made of the amount of the obligation. Where the effect of discounting is material, provisions are dis-counted.

1.8 Finance income and finance costs

Interest income is recognised as it accrues in profit or loss, using the effective interest rate method.

Finance costs comprise interest expense on borrowings. Borrowing costs that are not directly attributable tothe acquisition, construction or production of a qualifying asset are recognised in profit or loss using theeffective interest method.


52

1.9 Property, plant and equipment (continued)

Short term employee benefitsThe costs of all short term employee benefits is recognised during the year in which the employee rendersrelated service. The provision for employee entitlements to wages, salaries, and annual sick leave representsthe amount which the organisation has a present obligation to pay as a result of employees' services providedto the balance sheet date. The provisions have been calculated at undiscounted amounts based on wage andsalary rates.

Long term employee benefitsThe Authority is bound to two long term benefits:

• The severance pay entitlement provided by Section 79 of the Labour Code 1992

• The gratuity granted to contract staff on completion of their contracts.

The respective provisions for the above employees entitlements have been accounted for progressively undernon-current liabilities at undiscounted amounts.

Gratuity payable within 12 months has been accounted for under current liabilities.

1.10 Foreign currency

Foreign currency translation

Transactions in foreign currencies are translated to the functional currency at exchange rates at the date ofthe transaction.

Monetary assets and liabilities denominated in foreign currency at the reporting date are translated to thefunctional currency at the exchange rate at that date.

The foreign currency differences arising on retranslation are recognised in profit or loss.

1.11 Border post refurbishment

These are funds that the Government of Lesotho has set aside for the refurbishment of other Border Posts. Themoney has been deposited into the Authority's accounts as it is the one which is leading the refurbishmentproject. The refurbishment costs have been capitalised as work in progress in the assets,and the fundsreceived are treated as capital injection.

1.12 Finance income and finance costs

Government Grants/Assistance are recognised when there is reasonable assurance that the entity willComply with the attached conditions, these grants are amortised over the useful live of the respective assets.

Property, plant and equipment acquired from the proceeds of grants are depreciated in accordance with theAuthority's property, plant and equipment accounting policy. Grants utilised to acquire property; plant andequipment are initially recognised as deferred grant and subsequently recognised in the statement ofcomprehensive income on a systematic and rational basis over the useful lives of the assets. Grants receivedto defray operating expenditure are recognised in the statement of comprehensive income when theexpenditure has been incurred.

The Board Members have overall responsibility for the establishment and oversight of the Authority's riskmanagement framework.


53

1.13 Financial risk management

The Authority's risk management policies are established to identify and analyse the risks faced by the Authority,to set appropriate risk limits and controls, and to monitor risk and adherence to limits. Risk management policiesand systems are reviewed regularly to reflect changes in market conditions and the Authority's activities. TheAuthority, through its training and management standards and procedures, aims to develop a disciplined andconstructive control environment in which all employees understand their roles and obligations.

The Board Members oversee how management monitors compliance with the Authority's risk managementpolicies and procedures and reviews the adequacy of the risk management framework in relation to therisks faced by the Authority.

The Authority has exposure to the following risks from its use of financial instruments:

Credit riskCredit risk is the risk that one party to a financial instrument will fail to discharge an obligation and causethe other party to incur a financial loss. LRA is exposed to credit related losses in the event of non-perfor-mance by counterparties to financial instruments as follows:

Cash and cash equivalents - all deposits and cash balances are placed with reputable financial institutions.

Staff debts are recovered in terms of the applicable policy and procedures directly from the employee's salary.

The Authority does not have significant credit risk exposure.

Liquidity riskLiquidity risk is the risk that the Authority will encounter difficulty in meeting the obligations associated withits financial liabilities that are settled by delivering cash or another financial asset.

The Authority manages its liquidity to ensure it is able to meet expenditure requirements. This is achievedthrough prudent liquidity risk management which includes maintaining sufficient cash resources. Since theAuthority is funded through Government subvention, it does not regard the liquidity risk to be high.

Market riskMarket risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equityprices will affect the Authority's income or the value of its holdings of financial instruments. The objective ofmarket risk management is to manage and control market risk exposures within acceptable parameters, whileoptimising the return.

Currency RiskCurrency risk is the risk that the value of a financial instrument will fluctuate because of changes in foreignexchange rates The Authority may utilise foreign currencies in its operations and consequently may beexposed to exchange rate fluctuations that have an impact on cash flows and financing activities However,at year-end there were no significant foreign currency exposures.

Interest rate riskFinancial Instruments that are sensitive to interest rate risk are bank balances and cash. A 1% increase ininterest rates would result in an additional surplus for the year while a decrease in interest rates by a similarmargin would result in an equal opposite effect.


54

1.14 Leases

Determining whether an arrangement contains a lease

At inception of an arrangement, the Authority determines whether such an arrangement is or contains a lease.A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of thatspecified asset. An arrangement conveys the right to use the asset if the arrangement conveys to theAuthority the right to control the use of the underlying asset.

At inception or upon re-assessment of the arrangement, the Authority separates payments and otherconsiderations required by such an arrangement into those for the lease and those for other elements on thebasis of their relative fair values. If the Authority concludes for a finance lease that it is impracticable toseparate the payments reliably, an asset and a liability are recognised at an amount equal to the fair value ofthe underlying asset. Subsequently the liability is reduced as payments are made and an imputed financecharge on the liability is recognised using the Authority's incremental borrowing rate.

Leased assets

Leases of property, plant and equipment that transfer to the Authority substantially all of the risks andrewards of ownership are classified as finance leases. The leased assets are measured initially at an amountequal to the lower of their fair value and the present value of the minimum lease payments. Subsequent toinitial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset.

Assets held under other leases are classified as operating leases and are not recognised in the Authority'sstatement of financial position.

Lease payments

Payments made under operating leases are recognised in profit or loss on a straight line basis over the termof the lease. Lease incentives received are recognised as an integral part of the total lease expense, overthe term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance expense andthe reduction of the outstanding liability. The finance element is allocated to each period during the leasetern so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Contingent lease payments are accounted for by revising the minimum lease payments over the remainingterm of the lease when the lease adjustment is confirmed.


55

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441

879

Not

es t

o th

e Fi

nanc

ial S

tate

men

ts (c

ontin

ued)

58

2.2

Inta

ngib

le a

sset

s

2018

2017

Use

ful l

ife

Ow

ned

asse

tsC

ost

Acc

umul

ated

Car

ryin

gC

ost

Acc

umul

ated

Car

ryin

g(i

n ye

ars)

depr

ecia

tion

amou

ntde

prec

iati

onam

ount

MM

MM

MM

5 So

ftwar

e (E

TPM

) 83

419

306

(3

3 36

7 72

2)

50 0

51 5

83

83 4

19 3

06

(16

683

861)

66

735

444

Softw

are

(ASY

CU

DA

) 21

956

087

(9

514

305

) 12

441

783

21

956

087

(5

123

087

) 16

833

000

105

375

393

(42

882

027)

62

493

366

10

5 37

5 39

3 (2

1 80

6 94

8)

83 5

68 4

45

The

carr

ying

am

ount

s of

pro

pert

y, p

lant

, and

equ

ipm

ent

can

be r

econ

cile

d as

fol

low

s: 2

018

Use

ful

Car

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g A

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ions

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D

epre

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Mov

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t C

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am

ount

at

duri

ng t

he

recl

assi

fica

tion

fo

r th

e be

twee

n am

ount

at

(in

year

s)

Ow

ned

asse

ts

1/4/

2017

ye

ar

duri

ng t

he y

ear

year

A

sset

typ

es

31/0

3/20

18M

M

M

M

M

M5

Softw

are

(ETP

M)

66 7

35 4

44

––

16 6

83 8

61

–50

051

583

Softw

are

(ASY

CU

DA

) 16

833

000

–

–4

391

218

–12

441

783

83 5

68 4

45

0 0

21 0

75 0

79

–62

493

366

The

carr

ying

am

ount

s of

pro

pert

y, p

lant

, and

equ

ipm

ent

can

be r

econ

cile

d as

fol

low

s: 2

017

Car

ryin

g A

ddit

ions

D

ispo

sal/

D

epre

ciat

ion

Mov

emen

t C

arry

ing

Dep

reci

atio

n am

ount

at

duri

ng t

he

recl

assi

fica

tion

fo

r th

e be

twee

n am

ount

at

rate

s (%

) O

wne

d as

sets

1/

4/20

16

year

du

ring

the

yea

r ye

ar

asse

t ty

pes

31/0

3/20

17M

M

M

M

M

M

0 So

ftwar

e (E

TPM

) –

––

16 6

83 8

61

83 4

19 3

06

66 7

35 4

4420

So

ftwar

e (A

SYC

UD

A)

––

–5

123

087

21 9

56 0

87

16 8

33 0

00

––

–21

806

948

10

5 37

5 39

383

568

445

NO

TETh

e pr

ior

year

bal

ance

s in

the

AFS

wer

e ad

just

ed to

ref

lect

the

com

para

tives

as

ther

e w

ere

asse

ts fr

om th

e ET

PM a

nd A

SYC

UD

A th

at

wer

e ca

pita

lised

in th

e cu

rren

t fin

anci

al y

ear

but r

elat

es to

the

2016

/201

7 fin

anci

al y

ear.

Not

es t

o th

e Fi

nanc

ial S

tate

men

ts (c

ontin

ued)

59

March March3 Accounts receivable 2018 2017

M M

Deposit 257 611 257 611Prepayments 1,189 532 678 377Accrued income 445 196 390 392Accrued interest 38 730 514Accounts receivable 27 240 27 240Other debtors 6 900 6 900

1 965 209 1 361 034

4 Bank and cashLRA operating account 123 336 310 74388 day deposit account - Nedbank 21 168 944 1 119 575Other short term deposits 66 287 764 37 826 723LRA call account 2 453 801 838 749LRA SARS account 0 433IRMS account 427 469 416 655Border refurbishment project account 373 932 375 601Cash on hand 94 445 73 495Mascon development fund 2 508 309 2 160 584

93 437 998 43 122 558

5 Collection accountsLRA refund account 26 185 647 9 332 236VAT call account 104 579 924VAT current account 14 576 599 2 213 981Income tax call account 1 270 242 1 605 257Income tax current account 2 765 302 5 031 665Income tax refund account 4 369 133 731 964Toll fees current account 4 237 944 3 097 003

53 509 446 22 013 030

SACU accountsCurrent account (198 583) 204 213Customs call account 107 374 768 76 717 318

107 176 184 76 921 531

Net balance 160 685 630 98 934 560

The above accounts represent monies collected on behalf of GOL and SACU and their transferred to the respective institutions.

6 Government funding

The Memorandum of Understanding between the Government of Lesotho (Ministry of Finance) and the Lesotho Revenue Authority provided for the transfer of all assets (nonmovable and movable) free of charge , previously held by the Departments for Customs and Excise, Sales Tax and Income Tax to the LesothoRevenue Authority. These assets have been revalued by Lethola Cost Associate.

7 Trust account(Rental income Mascon)

This is rental income received from the Maseru Station and Container Terminal site (MASCON). The Ministry of Works and LRA agreed to charge rent for usage of this site.The funds are put in a trust account which will be used to develop that site in future.

Notes to the financial statements (continued

60

8 Provision 2018Opening Additions Utilised Reversal Closingbalance during during balance

the year the yearM M M M M

8.1 Gratuity 8 104 336 8 907 007 (892 883) 0 16 118 460Severance pay 13 297 991 9 777 288 (6 007 023) 0 17 068 256

Total 21 402 327 18 684 295 (6 899 907) 0 33 186 716

Opening Additions Utilised Reversal Closingbalance during during balance


8.2 Leave 3 300 935 6 324 020 (613 802) (5 470 648) 3 540 504

Total 3 300 935 6 324 020 (613 802) (5 470 648) 3 540 504

Provision 2017Opening Additions Utilised Reversal Closingbalance during during balance


Gratuity 7 216 389 8 091 561 (7 203 614) 0 8 104 336Severance pay 11 271 565 4 716 831 (2 690 405) 0 13 297 991

Total 18 487 954 12 808 392 (9 894 019) 0 21 402 327

Opening Additions Utilised Reversal Closingbalance during during balance


Leave 2 722 104 36 045 958 (30 452 367) (5 014 761) 3 300 935

Total 2 722 104 36 045 958 (30 452 367) (5 014 761) 3 300 935

March March2018 2017

M M9 Long term liability 5 690 869 5 551 668

Payable to bank 5 690 869 5 551 668

10 Current loan liability 2 361 346 1 877 471

Payable to bank 2 361 346 1 877 471

11 Accounts payable and accruals 4 014 172 2 228 391Creditors 10 283 717 11 127 188Accruals 412 481 238 959

Other creditors 14 710 369 13 594 537


61

12. Contingent liabilitiesA number of companies and individuals have sued the Lesotho Revenue Authority over the last severalyears for various matters. Management has made an assessment of the possible liability as a result of thesepending cases. The total exposure has been estimated at M 3.8million.

March March13 Surplus/(deficit) for the year 2018 2017

M M

Surplus for the period is stated after charging the following:Depreciation 17 199 827 11 090 485Board fees and expenses 1 217 425 1 156 831Auditors' remuneration 347 540 327 250

18 764 791 12 574 566

14 Material related party transactionsMarch March

2018 2017M M

Operating funding/subvention 379 390 643 338 623 163Board fees and expenses 1 217 425 1 156 831

380 608 068 339 779 994

15. Financial instrumentsExposure to currency, interest rate and credit risk arises in the normal course of the Authority's business.

15.1 Currency riskAt the balance sheet date there were no balances that were exposed to exchange rate fluctuations.

15.2 Interest rate riskThe Authority does not limit its risk in respect of interest rate changes. Accordingly, interest rate fluctuations will directly impact on the Authority's results. At the balance sheet date, however, there were no significant balances that were exposed to interest rate fluctuations.

15.3 Credit riskNo collateral is required in respect of financial assets. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. At the balance sheet date there were no concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet.


62


15.4 Liquidity riskThe following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of any netting agreements:

Carrying Contractual Within Between 2amount cash flows 1 year and 5 years

M M M MFinancial liabilities:Borrowings 8 052 215 2 361346 2 361 346 5 690 869Trade and other payables 178 936 503 178 936 503 178 936 503 –

186 988 718 181 297 849 181 297 849 5 690 869

31 March 2017Financial liabilities:Borrowings – – – –Trade and other payables

115 830 033 115 830 033 115 830 033 –

115 839 033 115 83 033 115 830 033 –

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at a significantly different amount.

The carrying amount of financial assets represents the maximum credit exposure. The maximumexposure to credit risk at the reporting date was:

2018 2017M M

Loans and receivables 1 965 209 1 361 034Cash and cash equivalents 254 123628 142 057 118

143 418 152 143 418 152

15.5 Fair valuesThe fair values of all financial instruments are substantially identical to the carrying amounts reflected in the balance sheet.

The fair value of financial assets and financial liabilities together with the carrying amounts shown in the statement of financial position, are as follows:

Loans and Other financial Total carrying Fairreceivables liabilities amount value

M M M MFinancial liabilitiesTrade and other payables 115 830 033 – 115 830 033 115 830 033B0rrowing 8 052 215 – 8 052 215 8 052 215

123 882 248 – 123 882 248 123 882 248

Financial assetsTrade and other receivables 1 965 209 – 1 965 209 1 965 209Cash and cash equivalent 254 123 628 – 254 123 628 254 123 628

256 088 837 – 256 088 837 56 088 837

63


16 Prior year adjustments M 220 227

These adjustments were for transactions that relate to 2016/17 and earlier financial years but materialised in the current period under review as follows

• Debt recovery costs recovered from clients M 269 257• Payroll refunds M 4 639• Correction of bank charges for the previous year (M 35 532)• Payroll adjustments (M 18 137)

17 Grants amortised

During the periods 2014/15 and 2015/16 the government funded two projects namely ETPM and ASYCUDA and the monies received were capitalised as capital injection/grants and after thecompletion of the projects the amount needed to be amortised over the useful lives of the assetsand below is the current year charge

Category M

Amortisation charge monthly (April 2017-March 2018) 32 789 550

Total 32 789 550

64

The Chairperson of the LRA Board, Mr. Robert Likhang (left); Mr. Chabeli Ramolise, Board Member and theMinister of Water, Hon. Samonyane Ntsekele during the Official Launch of the 2018-23 LRA Strategy.

The Minister of Small Business Development, Cooperatives and Marketing, Honourable Chalane Phori on a tourof Maseru Borderpost to familiarize himself with border operations.

Lesotho Revenue Authority (LRA)PO Box 1085, Maseru 100, Lesotho, Southern Africa

Tel: +(266) 2231 3796 or +(266) 5221 5000 Fax: +(266) 2231 2091

E-mail: [email protected] Website: www.lra.org.ls

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